While the Fed has judged the US economy to be sufficiently robust to withstand an increase in interest rates, in many ways the US stands alone, with the recovery in most other regions and countries on a more precarious footing. Indeed with the Fed still effectively setting global monetary conditions – rates in most countries have also increased – the Fed has inadvertently driven an unwanted tightening in monetary conditions in many other countries.
Against this backdrop, the general tendency will be for the USD to appreciate over the coming year. That said, however, the magnitude of moves will be driven in large part by the policy response by each individual country to higher Fed rates. Or to put it another way, FX will be to a large degree driven by the effort each country puts into the “fight to establish monetary independence …”